Numerous prior posts dating back to 2012 (see here  for the subject matter tag) have discussed SNC-Lavalin Group’s (a Montreal-based engineering, procurement and construction services company) scrutiny under Canada’s FCPA-like law, the Corruption of Foreign Public Officials Act (CFPOA).
After years of pouting that it was not being treated fairly (see here  among other posts), SNC-Lavalin recently resolved a $280 million CFPOA enforcement action.
The below guest post from McCarthy Tetrault attorneys John Boscariol, Andrew Matheson and Robert Glasgow summarizes the enforcement action and its broader implications.
On December 18, 2019, the most recent, and closely watched, chapter in Canada’s ongoing efforts to fight corruption closed resoundingly with a guilty plea to fraud by, and record fine against, an SNC-Lavalin (“SNC”) affiliate in connection with its activities in Libya. The size of the fine, $280 million, sends a message to Canadian companies regarding Canada’s condemnation of foreign bribery and the need for companies to implement rigorous compliance controls when doing business abroad, including careful monitoring of the activities of their executives and agents.
SNC and two of its subsidiaries, SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. (“SLCI”) were charged with one count each of a violation of paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act (“CFPOA”) and one count each of fraud under paragraph 380(1)(a) of the Criminal Code. These charges arose out of its 2001-2011 dealings in Libya during the reign of the Gadhafi regime.
Having been denied a Remediation Agreement (the Canadian version of a Deferred Prosecution Agreement) in 2018, SNC and the Crown prepared to move forward to trial. Meanwhile, in early December of this year an SLCI executive allegedly involved in the conduct underlying these charges, Sami Bébawi, was found guilty for his role in the alleged corrupt scheme.
Less than a week later, one of the SNC entities – SLCI – pled guilty to a charge of fraud under section 380 of the Criminal Code for fraud in excess of five thousand dollars. As part of that guilty plea the remainder of the charges against SLCI and the remaining SNC entities were dropped by the Crown.
The ultimate result somewhat resembles a Remediation Agreement. SLCI is required to pay a significant fine for alleged wrongful conduct, has engaged in (and will continue to engage in) significant remediation, and will be subject to monitoring of its compliance controls. At the same time, one of Canada’s major construction and engineering companies will not be forcibly debarred from work with the Canadian government.
Just the facts – What did SLCI admit?
According to the Agreed Statement of Facts, SLCI engaged in construction projects in Libya between 2001 and 2011 generating approximately $1.8 billion in revenues on which it earned $235 million in gross pre-tax profit. During this time SLCI also paid approximately $51 million in benefits to Saadi Gadhafi, the son of Libyan dictator Muammar Gadhafi.
These benefits were arranged by two former senior SLCI officers (Riadh Ben Laroussi Ben Aissa and Sami Bébawi). The officers recommended that SNC entities enter into contracts with two entities that would then redistribute funds to them and Saadi Gadhafi. SLCI also paid for two visits by Gadhafi to Canada. All of these expenses were entered as costs to the various Libyan SLCI projects.
As Ben Aissa and Bébawi were senior officers of SLCI, it was agreed they met the requirements of section 22.2 of the Criminal Code to attach criminal liability directly to SLCI. The Agreed Statement of Facts set out that the benefits provided to Saadi Gadhafi resulted in him using his influence with his father and the government of Libya to funnel contracts to SLCI. It should be noted that nowhere in the statement of facts is this described as a “bribe” or a “corrupt payment”. Rather, it is cast as SLCI winning the contracts through the “fraudulent means of the influence exercised by Saadi Gadhafi in exchange for payments made to his benefit”. As a result, the “competitive bidding environment” was altered and Libya suffered a “loss or risk of loss within the meaning of paragraph 380(1)(a) of the Criminal Code.”
As noted in the Agreed Statement of Facts, since early 2012, SNC has taken measures to reduce the likelihood of it or its affiliates, including SLCI, committing a subsequent offence. These remediation measures include a complete turnover of the corporate executive team and Board of Directors, the implementation of a robust Compliance and Ethics Program, and the adoption of the necessary and appropriate steps to ensure checks and balances exist to prevent wrongful conduct from occurring again. SNC has also entered into an Administrative Agreement with Public Services and Procurement Canada (which provides for independent third party monitoring of its controls regime to ensure their rigor).
The plea and consequences
While SNC and its two affiliates were charged with a total of six counts (one each under the CFPOA, and one each under section 380 of the Criminal Code) the plea bargain took all of them off the table other than fraud against Libya under section 380 of the Criminal Code committed by SLCI. The other SNC entities, including the head corporate entity, emerged without any charges remaining against them.
As part of the plea SLCI was required to pay a fine of $280 million (which is approximately $45 million more than the gross profits it realized from the fraudulent transactions), which it will pay in equal installments over a five-year period. It will also be required to retain an independent consulting firm to monitor its ethics and compliance program as part of a three-year probation period.
There are significant consequences flowing from this plea bargain. First and foremost, the parent SNC entity will not have been charged or convicted of any wrongdoing – only SLCI will be sanctioned. This may impact any ongoing or potential debarment from other countries or third party bodies against the broader SNC corporate family.
Second, with regard to Canadian contracts, the plea bargain helps SNC avoid debarment under the Integrity Regime. The Integrity Regime (and the associated Ineligibility and Suspension Policy) administered by Public Services and Procurement Canada allows for debarment of contractors from participating in any Canadian government contracts. If a contractor is debarred, it cannot be awarded any future government contracts, and any contracts subject to that Integrity Regime would be terminated.
However, the Integrity Regime only debars contractors for having committed certain listed offences. Convictions for a violation of section 3 of the CFPOA (bribery of a foreign official) carries with it a mandatory debarment of a minimum of five years and up to ten years. In contrast, a conviction for fraud under section 380 of the Criminal Code only results in debarment if it is fraud committed against Her Majesty. A conviction for fraud against Libya would not result in any debarment under the current Integrity Regime.
As such, the plea accomplishes the dual-goal of denouncing the original conduct by SNC officials, while not causing automatic debarment which would punitively harm innocent employees, officers, and directors who have taken considerable and effective steps to remediate the situation.
The broader context
Although this did not result in a conviction specific to bribery of a foreign public official under the CFPOA, the outcome will be viewed as an accomplishment in Canadian law enforcement’s efforts to combat foreign corruption. The $280 million fine far exceeds any CFPOA fines to date – previous corruption pleas have included fines of $9.5 million for Niko Resources Inc. and $10.35 million for Griffiths Energy International Inc. Further, with the recent Bébawi conviction, a total of four business executives have now been convicted under the CFPOA. Convictions of individuals under the CFPOA now outnumber the convictions of companies.
Although the recent events point to an improved enforcement record, there are now only seven convictions under the CFPOA over its 20-year history and it is expected that Canada will continue to be under significant pressure from within and abroad to demonstrate that it is actively fighting foreign corruption. Canadian companies, particularly those operating in high risk jurisdictions, should ensure that they have implemented effective anti-corruption compliance measures to mitigate risk in this area.
In light of last year’s political controversy surrounding the Remediation Agreement regime, consideration should be given to ensuring that this option is accessible and viable for Canadian companies operating in international markets. Specifically, consideration should be given to the development of a formal voluntary disclosure process which is clear and reliable. Canada should draw upon lessons learned from the longstanding practice of Deferred Prosecution Agreements in the U.S. and more recent experience in the United Kingdom and other jurisdictions where they have also been adopted.